One of the biggest sentimental factors for Indian equity markets at this time of the year is the monsoon prediction. Wire agency PTI reported on Thursday, citing the Indian Meteorological Department, that this year’s monsoon could be ‘normal’ and bring rainfall equal to the long-term average, instead of the 96 percent forecast made in April. It's likely that sentiment on the Street turned positive as a result of this. The Sensex and the Nifty climbed to record highs, even as the rest of the Asian markets were mixed in trade, with a slight positive bias.
My point here, though, is not about the monsoon alone.
This forecast, if it plays out, throws one more bear case out of the window.
Bears have been desperately looking for some support to their argument, but most things are being ignored. A poor monsoon may no longer be a factor that triggers a correction. Valuations at 17.2 times earnings estimates for the financial year 2017-18 (FY18e) have been a constant, the earnings picture is looking better than anticipated.
Earnings for almost 46 percent of the Nifty weightage have either been in line with estimates, or above estimates. That is a rather large share of the 55 percent of Nifty earnings that have been declared. With the new ordinance meant for tackling banks' non-performing assets, there is hope that the scenario may improve by the end of FY18.
Keep in mind though – the base argument about valuations being expensive is not without reason. At little over 17 times price-to-earnings, India's markets are not trading in cheap territory, and that caveat remains. There have been a lot of predictions from global experts on social media about an impending crash. Let's see if and when that happens. For now, the cheer continues.
(This article was originally published in BloombergQuint)
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